Despite a 7.3x rise since the March 23 lows of this year, at the current price of around $9.50 per share we believe Nautilus Inc. stock (NYSE: NLS) has reached its near term potential. Nautilus’ stock has rallied from $1.20 to $9.50 off the recent bottom compared to the S&P which moved 39% over the same time period. A surge in demand for home fitness products, as well as strong revenue growth, which grew 11% in Q1 2020 (ending March), has led to the stock beating the overall market. However, Nautilus stock is down 30% from levels seen in early 2018, over two years ago. While NLS stock has recovered and is 100% ahead of the figure it was at in February before the drop due to the coronavirus outbreak becoming a pandemic, the stock seems to be fully valued as of now.
Some of the stock price decline of the last 2 years is justified by the roughly 24% fall seen in Nautilus’ revenues from $406 million in 2017 to $309 million in 2019, the effect of which was partially mitigated by a 3% fall in shares outstanding. Taken together, this led to revenue per share plunging by 21% from $13.24 in 2017 to $10.42 in 2019.
Finally, Nautilus’ P/S multiple fell from 1x at the end of 2017 to just 0.2x by the end of 2019. While the company’s P/S has now increased to 0.9x, it seems to be fairly priced when the current P/S is compared to levels seen in the past years. P/S of 0.8x at the end of 2018 and 1x as recent as late 2017. We believe the stock is unlikely to see further upside despite the recent rally and the potential weakness from a recession-driven by the Covid outbreak. Our dashboard, ‘What Factors Drove -30% Change In Nautilus Stock Between 2017 And Now?’ provides the key numbers behind our thinking, and we explain more below.
How Is Coronavirus Impacting Nautilus’ Stock?
The global spread of coronavirus has affected industrial and economic activity across the world. However, the lockdown has actually been a blessing a disguise for a bunch of companies, and Nautilus is one of them. Nautilus’ business has received a boost due to the outbreak of coronavirus as gym, parks, sports stadiums, and other fitness centers had to shut down to mitigate the spread of the virus. As a result, Nautilus witnessed a substantial increase in demand for its products, particularly at-home fitness products. Nautilus reported a robust performance in its Q1 2020 (ending March) results, with the company’s revenues growing by 11% to $94 million while the company delivered its first positive sales comp since the third quarter of 2018. Moreover, the company stated that despite increasing production, it carries a significant level of backlog of orders and might not be able to completely fulfill them until the beginning of the third quarter. With fitness companies shut due to the outbreak of the virus, Nautilus is clearly benefiting from this pandemic due to a surge in demand for at-home fitness products. However, with things returning to normal, it is unlikely that Nautilus could continue to grow at its recent pace.
That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Nautilus’ multinational peers.
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